When it comes to acquiring the necessary tools for ag production, farmers have the option to either lease or buy equipment. Both options have their pros and cons, and it’s important to consider factors like cost, flexibility, and long-term needs. Research and explore leasing vs buying equipment options to help you make an informed decision.


Lease


Leasing farm equipment is ideal for seasonal farming operations; you can lease the machinery during a specific season and return it when the season is over. This can save you on storage and maintenance costs. Leasing also allows you access to the latest technology of newer equipment, taking away the extra maintenance cost of older models without being faced with the significant upfront investment associated with purchasing new machinery. Lease payments may be fully deductible as a business expense, offering potential tax advantages.*


Leasing farm equipment can become, though, a long-term cost. While the cost upfront may be low, yearly these prices can increase beyond your comfort zone. Also, when leasing equipment, you are not able to customize it to your farming needs. Additionally, since you are not purchasing and owning that equipment, it limits your ability to build equity or sell the equipment for cash. Over an extended period, lease payments may exceed the total cost of purchasing the equipment. This can affect your farm’s financial health.


Buy


Having full control over your farm equipment is the main advantage of buying farm equipment. You can use the equipment whenever and wherever without the risk of breaking any lease agreement. Owned equipment can be modified or customized to suit specific farming needs without restrictions.  Owning your own equipment also becomes a capital asset that can add value to your operation the very moment you make a purchase. There is no worry about future interest increases, just one loan with reliable payment plans. You can even “rent out” or share your farm owned equipment. Depreciation and interest on financed equipment can be deducted, offering potential tax advantages.*


However, while you have full ownership in purchased equipment, it will decrease in value over time, may become outdated, and will likely require maintenance. You will also need to build equity in this equipment, which can be challenging for small farmers who don’t own as many acres or who annually rotate their equipment. 


The decision between leasing vs buying farming equipment depends on your specific needs and circumstances. Leasing can offer lower up-front costs and flexibility, while buying provides long-term ownership and potential cost savings in the long run. Remember to evaluate your financial situation, operational requirements, and future plans before making a decision. What works for one farmer may not be an ideal choice for you. Talk with your BankIowa ag advisor for guidance on what choice will best serve you. Our desire is to contribute to the long-term success of your ag operation!


*BankIowa does not offer tax advice. Consult with a tax advisor or attorney for guidance.

Credible Sources:

United Farm Mortgage